Finding Money To Save

Finding Money To Save

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Everyone knows that they should be saving at least 10% of their gross income for retirement, but that can seem like an impossible goal after paying all your bills. However, dont just figure that goal is unachievable without first looking at the after-tax cost.

For instance, assume you earn $50,000 annually and your employer matches 50 cents for every dollar you contribute to your 401(k) plan, up to 6% of your pay. If you put 6% of your pay, or $3,000, in the plan, your employer will match 3%, or $1,500. Your contribution really costs less than 6%, because the money
Is taken out before income taxes. If you are in the 25% tax bracket, your $3,000 contribution will save $750 in taxes, or 1.5% of your pay. So, between your contributions and your employers match, you will contribute 9% of your pay toward retirement, but it will only cost you 4.5% of your pay.

Made over long periods of time, those levels of contributions can help significantly in funding your retirement. If you contribute $4,500 annually starting at age 30, you could potentially accumulate $837,460 by age 65 with an investment return of 8% annually. (This example is provided for illustrative purposes only and is not indicative of the return of a specific investment.)

If possible, you should strive to contribute even larger sums of money. In 2010, the maximum 401(k) contribution is $16,500, plus individuals over age 50 can make an additional $5,500 catch-up
Contribution.

What if you dont have a 401(k) plan at work? Take a look at individual retirement accounts (iras). While you wont get an employer match, you can contribute to a deductible ira, if eligible, with pretax dollars, which reduces your contributions cost by your marginal income tax rate. In 2010, you can contribute a maximum of $5,000 to an ira, and individuals over age 50 can make an additional $1,000 catch-up contribution. So, if you are in the 25% tax bracket and make a $5,000 contribution, youll save $1,250 in income taxes. Or, you may prefer to contribute to a roth ira. While you wont get a current income tax deduction for your contribution, you can make qualified distributions free from federal income Taxes.

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To get to know more about Raytheon Retirement click here.



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